1. Field of the Invention
This invention relates to a method and to a system. More specifically, this invention is directed to a unique method of providing line of credit information to participating issuers of debit cards; and, to a system for the collection, management and periodic updating of such line of credit information. The line of credit information is based upon the cash surrender value of life insurance policies which have been assigned to the system to establish and secure the line of credit.
2. Description of the Prior Art
The collateralization of credit for various types of consumer transactions is not a new nor a risk free undertaking. Typically, such transactions have involved the vendor taking back a purchase money security interest in the goods sold to a customer. The collateralization of the debit is, thus, based upon creditor's belief and hope that if the debtors defaults, he can recover the merchandise and thereafter resell it (as used) to cover the default by the original purchaser. When the amount recovered from resale of the repossessed property is inadequate to cover the balance upon the original debit, the creditor must sue the debtor for the deficiency. In order to be fully protected in the collateralization of his purchase money security interest, the creditor must perfect such interest with the appropriate UCC filings. In order to avoid the problems inherent in this process, the vendors and merchants have attempted to shift the risk of collection of the unpaid balance of a consumer purchase to the various credit card companies. This process simply involves an agreement between the merchant and the credit card user which allows the merchant to accept the credit card in lieu of cash and the credit card issuer to collect the unpaid balances from the purchaser/card holder. The credit card issuer derives revenue from this process by discounting the amount paid to the merchant for the consumer purchase and by charging the credit card user (purchaser) interest on the unpaid balance. In addition, many of the credit card issuers charge the card holder an annual fee. The typical credit line on a credit card is based upon a credit information supplied to issuer by a credit card applicant. The credit line on such cards is generally unsecured. Where the credit card holder defaults upon his obligation to the card issuer, the card issuer is required to turn the delinquent debit over for collection or pursue collection efforts itself.
Collateralization of the extension of credit in the securities field is a relatively well established practice. More specifically, the securities in a client account can be used to secure the purchase of the additional securities; or, the newly purchased securities themselves serve as collateral for the loan. In each of these instances, the amount of credit extended to the client is limited by the credit requirements of the individual brokerage house and the Securities and Exchange Commission. Where the value of the pledged securities, or the securities purchased on margin, falls below permissible limits, the client/debtor, need supply additional collateral or sell the pledged collateral to cover his obligation. As is evident, the value of securities pledged collateral is subject to market forces which cannot be readily predicted. Where the fall in the value of the securities is severe, the collateral may be inadequate to cover the amount of the debt. Accordingly, the security industry must scrupulously monitor the value of the pledged collateral, and be prepared to liquidate its client's position in a particular stock where the margin requirements are exceeded. This forced liquidation has the unintended consequence of further depressing the value of the security in other firm client's portfolios. At least one brokerage house (Merrill, Lynch, Pierce Fenner & Smith), and possible others, monitor client portfolio values with a proprietary software program. U.S. Pat. Nos. 4,376,978 and 4,346,442 (both issued to Musmanno). The Musmanno patents describe what has become known in the industry by the phrase "Cash Management Account". One of the facets of this management system is to continuously monitor the value of client securities purchased on margin: Where the amount of credit exceeds the permissible margin requirements, the client must pledge additional collateral or the security can be sold. If the client has liquid assets in his account, (i.e. "Ready Assets"), funds from this liquid account can presumably be used, with prior authorization, to cover any shortfall in the collateral requirements, thereby avoiding a forced sale of the security in a declining market.
More recently, banks have promoted lines of credit secured by equity in real estate. These so called "equity credit lines" are based upon the present value of the property, the amount of current unpaid mortgage and the credit worthiness of the property owner. The collateral used to secure the equity credit line is subject to market fluctuations in real estate values and still requires a formal collection process in the event of default. Thus, even though the lender is secured, the collateral is not liquid and can fluctuate in value depending upon market conditions.
The lack of liquidity of collateral posses a substantial problem were, for example, the market for this collateral (i.e. real estate) is severely depressed. In addition, the administration of the system necessary to support a collateral secured lender can be both cumbersome, unwielding and expensive.
One proposed solution for this dilemma is to substitute a more liquid form of collateral for the traditional security. This has resulted in the relatively recent introduction of the debit-card. These so-called "debit-card" accounts have been offered as an alternative to the more traditional charge cards as a means for expediting the collection process and providing enhanced liquidity to secure the consumer's credit line. This type of account, simply authorizes vendor, through this issuer of the debit card, to transfer or debit funds from the bank account (i.e. checking or savings account) of the purchaser and deposit them in an account of the vendor. The issuer of the debit card would exact a fee for effecting such transfer.
As of the present, such devices have not proven to be very attractive. While the collection process is expedited, the debit card simply shifts the responsibility onto the consumer to keep the debit account adequately funded. It does not guarantee such adequate finding nor does it provide collateral for changes which are in excess of the funds in such account.
More recently, a unique system (hereinafter "Default Proof Credit Card System") has been developed, which is being marketed to credit card issuer that would simplify the credit application process and reduce its associated costs; provide verifiable line of credit information on qualified card applicants; and, collateralize the line of credit of the card holder with a source of liquid asset (Cuervo U.S. Pat. No. 4,718,009). The Cuervo patent describes a system for providing verifiable credit information to participants banks; and collateralize the charges made by credit card holder up to the verifiable line of credit based upon the cash surrender value of card holder of life insurance policy, which has been pre-assigned to the system. This form of collateral is unique in a number of respects; the most significant difference being that it is not subjected to the fluctuation in value associated with the securities and real estate (the two more popular forms of collateral in use today) since its value is actuarially determined. In addition, the Cuervo system provides the means for automatically increasing the line of credit of the credit card holder as the cash surrender value of the life insurance policy increases. As originally conceived, the Cuervo invention contemplated collateralization of credit and charge accounts with the cash surrender value of life insurance policies of card holders. This concept is, however, clearly applicable to virtually any credit/qualification/ collection/clearing environment in which the amount of credit extended is based primarily upon the debtor's ability to repay the loan; and, the collateralization of the transaction a secondary consideration because of the dollar amount of each individual transaction and the shear number of such transaction which are processed for each account. No one system has up to now been able to accommodate the competing needs of merchants of goods and services, the consumers of such goods and services and the financial institutions who traditionally have served as an intermediary in the collection process. Where an alternate has been offered to present credit/charge card system, for example "debit cards", both the consumer and the financial institutions, offering such arrangements, have been less than totally satisfied with the result.